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News:
- India’s GDP growth rate stands at 8.2% for the first quarter (April-June) of this year.
Important facts:
- The growth rate estimates need to be interpreted in the backdrop of:
- Depreciating rupee.
- Rising NPAs.
- Widening trade deficit.
- Shooting fuel prices.
- Despite all these concerning economic trends, the GDP rate presents a robust picture.
- Partly, it can be explained by low base effect i.e. low growth rate in the previous year gives inflated effect on the growth rate of the present year
- Deeper understanding of this growth paradox require sector wise analysis:
- Agriculture: agricultural GDP growth quickened as two successive years of good rains improved farm produce, but remained low.
- Manufacturing and construction: both the industries are gaining revival after the shock of demonetisation and simplification of GST.
- Services: the growth rate of this sector slowed down, still grew faster than agricultural GDP.
- Rural wage growth has remained stagnant for the past four years.
- Consumer Industries: they are reporting robust sales growth.
- Powered by government salary and pension hikes, private consumption growth has quickened.
- The share of investments in the GDP has reduced – a direct consequence of NPA crisis.
- Banking: only a little progress made in recapitalisation and in reforming Public sector Banks.
- Challenge before the government:
- The consumption driven growth is not sustainable after a point, especially if it is financed by government deficit.
- Mounting macro-economic pressures such as rising crude prices, risk of rising inter-country trade war etc.
- Suggestive measures and growth dilemma before the government:
- Currency devaluation to arrest the trade deficit, but it will also inflate retail fuel prices.
- Tax cuts on fuel to restrict fuel price hikes will widen fiscal deficit.
- RBI can increase interest rates to stabilise rupee, but it will increase the cost of borrowing and affect the investments.
- Way forward
- Removing bottlenecks and bringing efficiency in the supply chains.
- Reducing the dependence on fossils and accelerating transition to renewable source of energy.
- Inclusion of modern technologies in the manufacturing to boost Make in India, and shorten trade deficit